Social Due Diligence in EIB Lending : an Introduction to EIB

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Social Due Diligence in EIB Lending an
Introduction to EIBs Social Standards

• Eleni Kyrou, Social Development Specialist
• PJ/ECSO
• November 5th, 2014

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I. The Foundation of EIBs ES Framework

• EIBs general approach to the environment and
  social well-being is derived from the Lisbon
  Treaty (2009)
• The Charter of Fundamental Rights of the EU as
  the main reference for EIBs social standards
  and supplemented by good practice requirements
  (MFIs standards, ILO Core Labour Conventions, UN
  Guiding Principles on Business Human Rights,
  etc)
• EIB Statement of Environmental and Social
  Principles and Standards (2009) as its
  highest-level policy articulating EIBs
  commitments to environmental and social
  sustainability
• EIB ES Practices Handbook (updated 2013)
  operationalizes the Statement, introduces HR
  language, and provides guidance to promoters on
  compliance and alignment to ES performance
• EIB ES Standards apply to all regions
  (exceptions indicated) all types of financing
  both public and private sector projects
  throughout the project cycle

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Foundation of EIBs Environmental Social
Framework

• Highest-level policy of the Bank articulating
  EIBs commitments to environmental and social
  sustainability
• Applicable to all regions, all types of
  financing, to the whole project, throughout the
  project cycle

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EIB Environmental and Social Framework
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The Integrated Approach
EIB ES SPS committing to sustainability and the
protection and respect of human rights
Integration Environment, climate change, social
issues, biodiversity and ecosystems
10 EIB ES Standards key requirements for Bank
supported operations
EIB ES Framework
Standards apply to both public and private sector
and to all regions
Internal due diligence procedures for the Bank
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What do EIBs ES policies and Standards
Encompass?
COMPLIANCE
QUALITY ENHANCEMENT
RISK IMPACT MANAGEMENT
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EIB Environmental and Social Standards

• Requirements to be met throughout the life of an
  EIB-supported operation
• Help promoters manage ES impacts and risks
• Help promoters improve their ES performance
  through implementation of sound environmental and
  social practices, transparency and
  accountability.

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The Role of the EIB vs the Role of the Promoter
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The Social Standards Key Messages Specific
Outcomes Defined

• The social standards that need to be achieved are
  defined, but not the way in which they are
  achieved
• Avoid impacts Application of the Mitigation
  Hierarchy
• Avoids prescription and allows promoters to
  develop solutions that are appropriate to the
  circumstances and location
• Increases both opportunities and risks for
  promoters and their financiers

• Opportunity
• Innovation
• License to operate
• Cost effectiveness solutions
• Efficiency

• Risk
• Promoter and EIB need to understand what they
  have to do
• Capacity constraints of the promoter can mean
  that impacts are not managed

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EIB Social Due Diligence Guiding Principles

• Appraisal in the context of the projects
  definition, covering relevant stages of the
  project cycle, proportional to impacts and risks
• Support positive environmental and social
  outcomes
• Comply with national laws (but if not adequate
  EIB/EU/IFI policies should be the substitute) but
  sometimes not enough to say project is acceptable
  because it has national approval
• Apply international best practices
• Create ownership among stakeholders
• Assess implementation capacities and systems
• Support the rights of the project affected
  people
• Monitoring and review
• Not to be dogmatic but use experience, sector and
  country knowledge, judgement and common sense.

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III. Human Rights Integration Key Principles

• HR impact assessment seen as an integral part of
  a robust social impact assessment not required
  as a stand-alone instrument
• HR mitigation hierarchy as key principle --
  premised on the principle of remedy rather than
  off-setting
• Focus on materiality of risk to affected persons,
  now acknowledged as rights-holders
• Guided by considerations of likelihood, severity,
  and frequency of HR impacts anticipated, hence
  ordering the prioritization of mitigation
  measures accordingly (with exceptions in supply
  chain)
• Likelihood is often linked to (i) the country
  context related to specific rights, and (ii)
  specific business relationships posing particular
  HR risks
• Severity is to be appraised on basis of gravity
  of anticipated impacts (scale), scope and
  remediability of the said impact
• Considerations of influence over potential impact
  and leverage over those able to affect change
  should inform attribution of responsibility and
  obligation for action

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III. Human Rights Integration Key Challenges

• Supply chain risks remain due to the decision to
  limit the requirement to the application of
  standards and due diligence on the first-tier
  supplies  
• Application of standards in environments with
  poor governance (and particularly with public
  promoters)
• Challenges related to monitoring and follow-up of
  implementation of commitments by promoters

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Understand Promoter Capacity and Commitment
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Whats in the Standards?

• Objectives
• Definitions
• General guidance
• Screening questionnaire
• Specific requirements where sensible
• Further references

European Investment Bank
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Whats not in the Standards?

• Detailed step-by-step directions
• Coverage of all likely project scenarios
• Detailed methodologies for further studies
• gtSocial Development Specialist
• Further resources

European Investment Bank
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Standard 1 Assessment and Management of
Environmental and Social Impacts and Risks

• Objective
• To anticipate, avoid, minimize, and compensate
  for impacts and risks
• To mitigate or minimise negative impacts to
  affected communities and the environment
• To promote effective use of environmental and
  social management systems
• To promote adequate engagement and communication
  with project-affected communities
• In sum
• Standard 1 establishes the importance of (i)
  integrated assessment to identify the
  environmental and social impacts, risks, and
  opportunities of projects (ii) effective
  community engagement through disclosure of
  project-related information and consultation with
  local communities on matters that directly affect
  them and (iii) management of environmental and
  social performance throughout the life of the
  project .

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Standard 1 Assessment and Management of
Environmental and Social Impacts and Risks

• Key elements
• Assessment
• Management
• ME
• Stakeholder engagement
• Relevant frameworks of reference
• SEA
• Assessment area, taking into account assets or
  facilities or associated works directly owned or
  managed by the Promoter and integral parts of the
  main project intervention supporting/enabling
  activities associated facilities or businesses
  areas and communities likely to be affected by
  cumulative impacts
• When do we undertake a comprehensive
  environmental and/or social assessment?
• Environmental and Social Management Plans (ESMPs)
• Organizational and Management Systems
• Intermediated Operations Corporate loans

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Standard 8 Labour Standards

• Objectives
• To promote fair treatment, non-discrimination,
  equal opportunity and safe conditions for
  workers and employees
• To ensure compliance with national employment
  and labour laws
• To protect workers and avoid the use of
  forced or child labour
• To promote the right to freedom of
  association.
• Key elements
• The Bank is expected to undertake a labour
  assessment, follow up in monitoring
• Requires comparable terms and conditions for all
  workers
• Defines first-tier supplier and contractor,
  requiring application of due diligence at that
  level, too
• Introduces requirements for workers
  accommodation
• Ensures worker access to a grievance mechanism
• Introduces the notion of labour audit.

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Standard 8 Labour Standards
Red lines No child labour is admissible No forced
or bonded labour is acceptable Highly
desirable Freedom of association and the right to
collective bargaining Screening Check Promoters
awareness of ILO Core Labour Standards and
compatibility with national law Assess risk in
terms of labour problems downtime, union
problems, worker-management relationships,
working conditions, etc Is there an internal
grievance mechanism for workers? Review the
Promoters employment policies (HR), their
adequacy, and managements capacity to
implement Are the actions required to meet
necessary standards articulated in the ESMP? How
to handle subcontractors and supply chain? Do
not rely automatically on fellow IFIs in the
transaction
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Standard 9 Occupational and Public Health,
Safety and Security

• Objectives
• To anticipate and avoid or manage health, safety
  and security impacts on workers and the public
• To safeguard people and property in accordance
  with relevant human rights principles.
• Key highlights
• The Standard applies to 1st-tier suppliers and
  primary contractors. Promoters are recommended to
  seek to apply the Standard through the supply
  chain with the use of a human rights due
  diligence assessment.
• Where health impacts on the public and/or the
  workers of significant magnitude, an ESHIA is
  expected. Specifically for the labour domain, a
  hazard assessment is foreseen.
• Labourers accommodation and health, hygiene
  safety considerations
• Security management enters the scene in our due
  diligence
• Different risks related to HSS that the promoter
  needs to address, managed through a variety of
  plans, such as influx management plan emergency
  preparedness plan traffic management plan
  security management plan etc.
• IFI differences on OSHS

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Standard 9 Occupational and Public Health,
Safety and Security

• Screening
• Assess health, safety and hygiene risks for
  workers and communities alike ? transportation
  and access, waste disposal, security personnel,
  in-migration of workers exposure to disease,
  etc.
• Plans or measures to deal with these risks
• Is there a formal structure to deal with the HSH
  issues? Reporting measures of incidents?
• Are there any significant security threats? Is
  the Promoter considering the hiring of public or
  private security forces?
• Check living and hygiene conditions at
  labourersquarters
• Monitoring can be done by site visits for major
  projects by lenders advisors

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EIB Project Cycle and Social Due Diligence
Elements
ES issues
Project cycle
Paper trail
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Stages of the EIB Project Cycle and Relevant
Points of Disclosure and Engagement

• Appraisal

• Disbursement

• Supervision

• Approval

• Pre-Appraisal

Promoter Community
engagement and consultation
EIB Publication of ESDS
EIB Publication of NTS/EIS
Promoter On-going Community Engagement /
Documentation Updates
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ECSO What We Strive For

• ECSO Environment, Climate and Social Office (PJ)
• Three (3) social specialists in place available
  for full attribution and/or helpdesk function
• Social screening process once PIN is issued
• Social Working Group (inter-directorate)
• We work towards
• Adding value
• A collaborative and transparent process
• Engage stakeholders in a variety of ways
• Adapt to ever changing global ES needs
• Obtain feedback from directly-affected
  communities and promoters.

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THANK YOU

• Eleni Kyrou
• PJ/ECSO